Everyone loves the idea of guarantees for reducing risk. But with every type of guarantee having its pros and cons, how do you decide which one you really need? Here, Augury’s Director of Market Strategy James Newman gives a run-down on the main differences between guaranteeing ROI versus actual performance. In essence, he sees the first as lacking ambition and the second as having too much ambition. When it comes to risk mitigation – and having a real impact on your business – the middle path is the answer, according to James.
As I observe the AI-driven manufacturing marketplace, I’m noticing people talking more and more about how they can reduce risk. Of course, this is where guarantees become interesting. However, there’s a whole spectrum of guarantees to choose from.
Satisfaction Guarantees Don’t Satisfy
As old as the first sales bargain, the money-back guarantee can certainly be an attractive option. In manufacturing, such guarantees are often translated into getting your money back if you don’t get your ROI within a certain timeframe. For people who don’t know what to do yet with a new technology, this concept feels very safe and could be very interesting to test the waters without losing your initial investment.
But if you are actually out to impact your business objectives, this “I can’t lose” proposition simply isn’t enough. In fact, I’d argue they are a waste of time: you are not reducing risk, you are simply being offered minimal risk. If it does nothing, you end up with nothing. And that should not be our goal in manufacturing. We should be doing things that matter.
And then there’s a time frame involved. Say, it’s only for a year. Will the guarantors bust their humps to make sure you get your ROI within that year, and then let you slide in the second year? And what about the conditions? Do you really know when and where that money-back guarantee applies?
With so many questions, I’d really need to trust them to buy into it.
If it does nothing, you end up with nothing. And that should not be our goal in manufacturing. We should be doing things that matter.
Production Guarantees Are Not Realistic
On the other end of the spectrum, you have production guarantees. It’s the ultimate statement of trustworthiness: We will pay for any losses you incur. But in general, these are unrealistic because almost no company can guarantee the production of a manufacturing facility – except perhaps the manufacturing facility itself.
A lot of people are still talking about production guarantees – it certainly represents a worthy ambition.
OEMs don’t control all the facets of your operations, including human behaviors. Likewise, technology providers can educate organizations on how and why their production lags or fails, but they can’t actually prevent production from failing. As things stand today, how would anyone ever prove who’s at fault when a production failure occurs in one of these complex and variable manufacturing facilities? And even if they could assign blame, they wouldn’t be able to get insurance for it, as the market capital required to back these types of guarantees at scale is just too far out of reach for the vast majority of organizations.
Yet, a lot of people are still talking about production guarantees – it certainly represents a worthy ambition. And at one point the world’s largest organizations, backed by a big capital base, might start offering these types of guarantees. But what can we get in the meantime?
Performance Guarantees As A Way To Share Risk
GE Aviation has an interesting OEM-backed solution with their TrueChoice™ Flight Hour program, which uses their long experience to charge you on how many hours your plane will fly – guaranteeing the flight hours. They don’t guarantee their stuff won’t break down, but you only pay when it works. That’s not the same thing as if your plane doesn’t fly, I’ll pay for all that money you lost. But it is well beyond the idea of “buy an engine, and I will monitor it for you.”
The flight hour program gives GE a real stake in the game of flight operations, since the more hours a plane flies, the more money GE makes. These “performance” guarantees are very interesting and lots of OEMs are looking at how they can be applied.
But for manufacturers even this type of guarantee is simply too limiting in many cases, as they have many older assets already in play that they own, and most OEMs aren’t going to “buy them back” at a price that makes sense. So, in reality, the extremes – the money-back versus the production guarantee – are probably either unnecessary or unrealistic. OEM backed performance guarantees come much closer, but may not work for many manufacturers.
So, what do you do instead?
The Middle Path Of Just Rightness?
At Augury, we offer the option for our customers to take advantage of our guaranteed diagnostics coverage. This means if a machine breaks down on our watch, you will be compensated for up to $100,000 per machine to repair or replace that asset – for the full life of that asset. This performance insurance coverage, backed by Munich RE, has a low premium per asset, but the value is substantial. As long as you pay your insurance premiums, you are actively mitigating risk – not just against asset failure, but actively reducing the risk of worker injury and lost production. And it doesn’t matter if it’s one year or ten years, you will stay covered.
Augury is now invested in your asset’s production, as it isn’t just the health of the asset at stake, Augury’s reputation is also on the line, both with the customer and with our insurance partner Munich RE.
By looping in a third party like Munich RE, we are also bringing in an increased sense of credibility to our services. People know that insurance companies do their research: that they are not out to lose money. This builds trust that we are indeed de-escalating your risk.
“People buy from people they trust.”
In fact, that sense of trust will still be there even if you decide not to pay the premium (although you obviously lose out on the guarantee). But you can take confidence in a provider who has the backing of an insurer who is confident enough to offer this kind of performance guarantee.
What Will Make Your Business Better?
In other words, Augury is minimizing risk by maximizing trust. And you know what they say: “People buy from people they trust.” And unlike most OEM-backed performance guarantees, our solution works on the assets you own now, so you don’t have to buy new assets to get into the program.
At the end of the day, guarantees are a measure of reducing risk. So, the question isn’t “Do I really need a guarantee?” Of course you do. The real question is “Is this partner and their guarantee really going to help me make my business better?” Answer that, and you and your business win.
Do you want to learn more about Augury’s guaranteed machine health diagnostics? Reach out!
